Senate, House Get NFIP Rate Bills

Legislation was introduced Tuesday in both the House and Senate that, as expected, would effectively delay for perhaps four years most flood insurance rate increases mandated by a 2012 law reauthorizing the National Flood Insurance Program.

Despite the fact that the sponsors resisted initiatives by some members of Congress to delay increases proposed for second homes and businesses, an insurance industry trade group, a coalition of supporters of comprehensive catastrophe abatement policies and a conservative think tank immediately said they would oppose the legislation.

Sponsors of the bills seeking the delay (NAFCU is among those calling for it.) face other hurdles. For example, they either propose ways to offset the cost to the U.S. budget deficit or obtain a waiver of those budgetary rules. The amount of the required funds will have to be set by the Congressional Budget Office.

They are also acting against the background of the fact that, as a result of Sandy and Katrina, the NFIP owes the Treasury approximately $24 billion—and that amount is likely to rise as homeowners impacted by Sandy appeal to get more funds than authorized to rebuild their homes or businesses.

The National Association of Mutual Insurance Companies said the debt is now $28 billion.

The primary sponsors in the Senate are Robert Menendez (D-N.J.) and Johnny Isaakson (R-Ga.) It has eight other Senate co-sponsors. The bill is the Menendez-Isakson “Homeowner Flood Insurance Affordability Act.” Companion legislation is being introduced at the same time in the House. Chief sponsor of the House bill is Rep. Maxine Waters (D-Calif.), Ranking Member of the House Financial Services Committee. A total of 81 other members of the House also signed on.

Menendez and Isaakson said the bill delays the “most dangerous rate increases under the Biggert-Waters Act until FEMA proves its flood maps are accurate and understands the impacts these drastic rate increases will have on individual policy holders and the program at large.”

They said the legislation “is about fairness and building a future our communities can count on.

“Our coalition of business groups, non-profits, local leaders and bipartisan members of congress continues to grow every day and we will keep pushing until this bill becomes law,” Menendez and Isaakson said.

However, the National Association of Mutual Insurance Companies said the bill is a bad idea and suggested as an alternative that Congress could further ease the transition to risk-based rates without damaging the NFIP simply by moving from the hidden subsidy of suppressed rates to a transparent one provided to homeowners on a means-tested basis.

“It’s understandable, from a political perspective, that elected officials don’t want to be seen as the reason for higher flood insurance premiums, and no one wants to see homeowners face a true hardship,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC.

“At the same time, however, there are millions of policyholders who rely on the NFIP for flood insurance and who deserve a program that will be able to meet its obligations,” Grande said.

“As it stands, that cannot be said of the NFIP, which owes roughly $28 billion to the taxpayers and is why these reforms were passed in the first place. Delaying the reforms adopted under the Biggert-Waters Act means a return to the days of the NFIP needing taxpayer-funded bailouts,” Grande said.

SmarterSafer.org – a coalition of environmental groups, taxpayer advocates, insurers, and housing and mitigation organizations – said that the delays proposed in the bills would “essentially gut” reforms to the NFIP and put its financial stability in danger.

It instead suggested several “common-sense measures” that would make these reforms work better for those with real needs “while continuing to shore up the finances of the NFIP. Delaying would be a mistake and should be avoided at all costs.”

The R Street Institute, a conservative think tank, said that the Government Accountability Office has determined that 78.8% of subsidized policies are in counties that rank in the top 30% of home values, while less than 1% are in counties that rank in the bottom 30%.

"Delaying the scheduled phase-out of flood insurance premium subsidies amounts to a gift to mostly wealthy homeowners who get to enjoy cheap insurance on their beach homes thanks to taxpayer support," said R Street Senior Fellow R.J. Lehmann.

"It's important that flood map designations reflect the risk on the ground as accurately as possible, and to that end, we think it is important that FEMA's maps account for all flood protection systems, including those state and local levees that have not been certified by the Army Corps of Engineers," Lehmann said.

A federal lawsuit seeking an injunction against the rate hikes has been filed in Mississippi by that state’s insurance commissioner. Louisiana is filing a friend of the court in the case, and Florida, and, likely Alabama, are drafting similar briefs.